Barclays names the global stocks benefitting from falling inflation — and gives two 60% upside
Barclays identified several European stocks that it says could benefit from an environment of falling inflation. Disinflation – the slowing down of the inflation rate — is particularly tricky for some companies, as their profits do not grow in line with their cost pressures. Euro zone inflation fell to 5.3% in July , down from a peak of 10.6% in October 2022. As interest rates remain elevated, inflation is expected to fall further toward the European Central Bank’s 2% target in the coming months. The investment bank said its stock picks it called “disinflation winners” are particularly adept at operating in the current environment, with at least two picks expected to rise by more than 60% over the next 12 months. “European equities posted solid returns in July, with sentiment in the economy improving given expectations that inflation is peaking and growing hopes for a soft landing,” said Barclays’ strategists, including Emmanuel Cau, in a research note to clients on August 15. While Barclays expect euro zone growth to weaken in the second half, the bank said corporate earnings have so far proven resilient. The bank’s analysts said a soft-landing scenario had now become consensus, leading more investors into value stocks. The below table highlights 10 “disinflation winners” from Barclays with the biggest upside: Delivery Hero Among the stocks highlighted, shares of food delivery company Delivery Hero had the biggest upside potential. Barclays expects the stock to rise by 64% over the next 12 months to 63 euros ($68.9). “Delivery Hero has the most forward thinking vision of the EU delivery aggregators, in our view. It is a space on which we are positive, and that flows into our assessment of the investment case,” said Barclays analysts led by Andrew Ross in a note to clients on August 10. The investment bank’s analyst also added that the investors would “welcome” and “view it as a bonus on top” if the company were to sell or consolidate divisions in smaller markets where it operates. Lloyds Banking Group Barclays expects shares of U.K.-based lender Lloyds Banking Group to rise 64% over the next 12 months to £0.70 ($0.89). U.K.-listed shares are typically quoted in pennies instead of pounds. The investment bank expects the higher interest rate environment to benefit Lloyds as the lender is expected to generate bigger profits through an expansion in net interest margin. “We see an enduring tailwind from rising rates, and greater resiliency to liquidity unwind/deposit outflows. Together with falling provision risks we expect higher profits to drive outsized capital returns,” said Barclays’ analysts led by Aman Rakka in a note to clients on July 27. Lloyds ‘ shares also trade in the U.S. Legal & General Barclays’ analysts are also bullish on the U.K. life insurance sector and expect shares of L & G to rise by 42% over the next 12 months. The investment bank expects the higher interest rate environment to benefit insurers as they can meet their long-term liabilities with smaller initial capital outlays. “For the UK life insurers, from a macroeconomic perspective, the direction of travel is broadly positive but the pace is pedestrian,” the analysts led by Larissa van Deventer wrote in a note to clients on August 4. “With most UK life names offering attractive yields and strong cash profiles, we like L & G for its scope for growth.”
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